Fiserv to buy First Data for $22 billion – the biggest ever acquisition in the booming market for digital payments

The transaction unites two premier companies to create one of the world’s leading payments and financial technology providers. The transaction is expected to generate at least $500 million of revenue synergies over a five year period. The combined company expects to generate significant free cash flow exceeding $4 billion in the third year following close, including synergies.

U.S. financial technology provider Fiserv Inc said on Wednesday it had agreed to buy payment processor First Data Corp in a $22 billion all-stock deal. The deal illustrates how providers of commoditized banking services are seeking to diversify by developing or acquiring technology that powers transactions such as credit card purchases and payments through a mobile phone.

Fiserv, one of the biggest technology providers to banks by revenue, said in a statement the acquisition enables it to offer services to financial clients, from enrolling new customers to providing multiple ways to handle physical or digital payments.

„This highly complementary combination will offer leading technology capabilities that enable a range of payments and financial services, including account processing and digital banking solutions; card issuer processing and network services; e-commerce; integrated payments; and the Clover™ cloud-based point-of-sale solution.

The combined company will offer comprehensive distribution channels and have deep expertise in partnering with financial institutions, merchants and billers of all sizes, as well as software developers.”, according to the press release.

In an interview, Fiserv President and Chief Executive Jeffery Yabuki said the deal combines “the largest, broadest and best processor of card-based payments” with his firm’s expertise in other areas of payments, such as bank transfers.

First Data’s low valuation compared to that of its rivals also gave Fiserv confidence to pursue the deal, a source familiar with the matter said, according to Reuters. First Data trades at a price-to-earnings ratio of 14.83 times, compared with 56.25 for Global Payments Inc and 30 for Euronet Worldwide Inc, according to Refinitiv data.

Despite its strong market position for payments, especially in the United States, First Data has been weighed down by heavy debts from a $29 billion leveraged buyout led by private equity firm KKR & Co Inc in 2007.

First Data became publicly traded again in 2015, although its share performance has lagged since then, despite efforts by First Data Chief Executive Frank Bisignano, a former top JPMorgan Chase & Co executive, to reduce leverage levels.

“It’s not about timing but more securing a strategic combination that’s unparalleled,” Bisignano said in an interview, when asked why the company had sold itself before the deleveraging program was complete.

Fiserv said it had secured debt to refinance First Data’s existing $17 billion of obligations, and planned to return to its historical leverage levels within 24 months after the deal closes.

The combination is expected to generate approximately $900 million of run-rate cost synergy savings over five years, driven primarily by the elimination of duplicative corporate structures, streamlined technology infrastructure, increased operational efficiencies, process improvements, and footprint optimization.

Fiserv will offer $22.74 for each First Data share, a premium of nearly 30 percent over Tuesday’s closing price.

After the deal’s expected closing in the second half of 2019, Fiserv shareholders will own 57.5 percent of the combined company and First Data shareholders the rest.

Following the close of the transaction, the combined company expects to invest an incremental $500 million over five years to create significantly enhanced solutions for clients and accelerate growth.

First Data’s shares closed 20.7 percent higher at $21.17, while Fiserv’s fell 3.8 percent.